Market Commentary Posted on

October 2019 Market Commentary: Tearing at the Seams?

Data Source: Bloomberg

October 2019 Highlights:

  • Global stocks posted positive returns (MSCI All-Country World Index or ACWI up 2.7%). Japan, Emerging Markets, and Pacific ex Japan led major regions (up 4.9%, 4.2%, and 4.0%, respectively) while the U.S. lagged (S&P 500 up 2.2%).
  • Overall, it was a decent month for global equities as recession fears receded and optimism grew over resolution to U.S./China trade conflict and BREXIT.  Emerging Markets have recovered on renewed optimism over global trade, pension reform in Brazil, and a Russian-brokered ceasefire between Turkey and Syria. 
  • U.S. small caps had led large caps up until the last week of the month.  Value narrowly outperformed growth after having given much of its relative performance at the end of the month (Figure 12).  S&P Small Cap returned 1.9% vs. 2.2% for the S&P 500 while S&P Pure Value returned 1.0% vs. 0.7% for Pure Growth; both styles underperforming the broader market. 
  • The healthcare sector recovered from its underperformance in September to lead all major sectors along with technology and communication services, the latter benefiting from strong 3Q earnings releases.  Defensive sectors (real estate, consumer staples, and utilities) lagged, partly driven by the rise in interest rates; energy lagged due to the drop in oil prices.
  • Among factors, Quality was the only factor to outperform the broader market while the other factors underperformed.
  • Fixed income was marginally up in October as the 10-Year Treasury Yield settled at 1.69% (down from an intramonth peak of 1.84%), nearly unchanged from the beginning of the month.  The U.S. Bloomberg/Barclays Aggregate Index returned 0.3% in October. 
  • High yield posted a positive month as corporate credit spreads remained stable despite the continued sell-off in energy credit. 
  • Commodities gave up a chunk of their gains towards the end of the month but finished with a positive return of 1.2% while Precious Metals rallied following the Fed meeting to end up 3.3%.
  • Bullish investors betting on further market advances are increasingly paying up for ‘safer’ participation by hiding out in the more defensive, higher quality segments of the market, while waiting for the earnings picture to improve in 2020. 
  • Market advances amidst a decline in U.S. trade activity is not sustainable, and the Fed may find itself backed into a corner if the U.S./China trade dispute is not resolved such that U.S. tariffs no longer pose an overhang on business investment.

To view the full market commentary, click here.

By: Benjamin Lavine